Tuesday, December 14, 2004

Sprint and Nextel Communications confirmed their plans to merge into a larger wireless and integrated communications service provider. The two companies currently serve more than 35 million wireless subscribers and 5 million additional subscribers through affiliates and partners.

The new company would look to leverage a strong spectrum position to deliver nationwide mobile data and push-to-talk services. The company is also aiming to deliver new broadband wireless services for consumers. Some infrastructure implications for the merger include:

Sprint LEC spinoff: Following the close of the merger, Sprint Nextel intends to separate Sprint's local telecommunications business, including consumer, business and wholesale operations from its other businesses and then spin this separated company off to the Sprint Nextel shareholders in a transaction that is expected to be tax free. The inclusion of Sprint's North Supply business in the spin-off will be determined at a later date.

Sprints local telecommunications business, which has 7.7 million local access lines in 18 states and had revenues of more than $6 billion over the past four quarters, would be the largest independent local telephone company in the U.S. The independent company would maintain commercial operating relationships with Sprint Nextel for mobile and long-distance network services and will receive certain transitional services, including corporate support functions. Its corporate headquarters would be in Kansas City.

Nextel had been planning to deploy Motorola's WiDEN technology in its nationwide digital iDEN voice and packet data network. Motorola's WiDEN higher speed data technology is designed to quadruple data speeds. Nextel has also been testing a wireless broadband service in the Raleigh-Durham, N.C. market using Flarion Technologies' FLASH-OFDM technology.

The combined company would continue to invest in its iDEN network until all voice traffic can be supported on the CDMA network. Nextel's push-to-talk (PTT) service would continue to run on the iDEN network until PTT could be supported on CDMA EVDO (Rev A) in about 2008.

Sprint's CDMA network: Sprint's national 1.9GHz/CDMA network would expand through the use of Nextel cell sites and spectrum. The company would also continue its CDMA-EVDO upgrades. Earlier this month, Sprint finalized multiyear wireless services infrastructure build-out agreements totaling approximately $3 billion with Lucent, Motorola and Nortel. Sprint expects to spend about $1 billion of the $3 billion investment total to upgrade its network to EV-DO. The contracts involve new switching and radio hardware and software for cell sites, capacity augmentation, and Sprint's EV-DO (Evolution, Data Optimized) wireless high-speed data network deployment. The contracts also include future 1xEV technology upgrade options.

In June 2004, Sprint announced its plan to provide next-generation EV-DO wireless service at peak data rates of up to 2.4 Mbps to major U.S. metro areas during 2005. These rates could be boosted to 3.1 Mbps downlink and 1.8 Mbps uplink by 2006/7.

Merger Synergies The merged company is expected to yield OPEX and CAPEX savings of over $12 billion by: reducing the number of cell sites and switches; lower overall investment by extending the advantages of Sprint's current deployment of next-generation EV-DO technology to the combined customer base; migrating Nextel backhaul and other telecommunications traffic to Sprint's long haul infrastructure; optimizing customer care, billing and IT costs by consolidating operations, infrastructure support costs and overhead; reducing combined sales and marketing costs; and reducing network capital expense after the merger by building a true IP-based multimedia network. http://www.sprint.comhttp://www.nextel.com

Nextel was founded in 1987 (originally called Fleet Call). In the early 1990s, it merged with a number of other carriers, including OneComm and Dial Call. In 1994, Nextel acquired all of Motorola's SMR radio licenses in the United States, providing Nextel with significant spectrum rights in each of the top 50 U.S. markets. In 1995, Craig O. McCaw and his family agree to invest up to $1.1 billion in Nextel. In 1996, Nextel introduced Motorola's iDEN technology into its network.

Nextel Communications ended Q3 with approximately 15.3 million total subscribers including 14.5 million Nextel subscribers and 800,000 Boost Mobile subscribers. During the quarter, Nextel added 550,000 new subscribers, average revenue per user (ARPU) was $69 and customer satisfaction improved as churn was reduced to 1.5%. In addition, Boost Mobile added 195,000 subscribers during the third quarter.

At the end of Q3, Sprint had 23.2 million wireless subscribers, consisting of 17.3 million direct, 3.1 million from affiliates and 2.8 million wholesale. Average subscriber usage was just under 17 hours per month. The Sprint PCS Vision service currently has over 7 million wireless data subscribers. In Q3, Sprint PCS had ARPU of $63. The company added 952,000 net wireless subscribers in Q3, including 422,000 wholesale subscribers. Sprint currently has over 2.5 million wholesale wireless subscribers.